Margin Trading - Advantages and Disadvantages
Trading on margin greatly increases a traders buying power. It provides him an opportunity to make enormous profits using lesser money. Margin trading is a very common trading strategy that has both merits and demerits; and the success depends on many factors, both manageable and unmanageable.
Advantages of Margin Trading
Advantages of Margin Trading
- Increased buying power with less money.
- More profit with less investment.
- A trader can burrow up to half of his purchasing price as initial margin.
- Greatly suitable for day traders, who need to complete more number of trades with higher volume stocks.
- Suitable for experienced traders, having knowledge of stock market trend patterns.
- Add more burdens on traders’ shoulders in losing trades.
- Have to payoff interest on margin.
- Cannot trade all stocks - like OTC stocks, penny stocks, IPOs etc.
- Your account balance and buying power changes with changes in stock prices.
- The chance of margin call is always prevailing.
- You are always obligated to keep a minimum account – the maintenance margin.
- With falling stock prices the traders have much less control.
- Not advocated for novice traders.
posted by NobleTrading at
4:22 AM
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